Wednesday, May 25, 2011

Last week, rating agency Fitch downgraded the debt rating of Belgium to negative, earlier it downgraded Greece’s debt rating.Greece’s Debt to GDP ratio is continuously rising and the only solution remaining is debt-restructuring.

S& P (Standards and Poor’s) too downgraded Italy’s 'government debt' from stable to negative.S&P feared that restructuring of Greece debt shall have contagion effect on other peripheral countries of Euro zone.Sensing the future plight bourses in Europe, USA and Asia are falling significantly.

American economist Nouriel Roubini said the crisis could spread from Greece and Ireland to Portugal, Belgium and Spain.

Billionaire investor George Soros expressed concerns that Europe could split in two parts as powerful economies like Germany and France are standing apart from weaker periphery around.Soros made a discerning point-‘Euro was flawed from the inception because it only had a common central bank but no common treasury’.

Apart from Mr. Soros’s point another reason behind European debt crisis is little freedom to set suitable monetary policies.USA too has been piled under debt, USA debt is reaching 100 percent of US GDP, but the golden solution USA is having is-“devaluation”.USA can devalue it’s currency to get rid of some debt.

European nations don’t have freedom to devalue Euro which is resulting in piling of debt and only solution remains is the debt restructuring.Reluctance of financially sound economies like Germany and France, makes restructuring difficult.